Broker views: Is the age of rock bottom rates over?

As more and more people lock into longer term fixes, Newspage asked a selection of mortgage brokers if the age of rock-bottom interest rates is finally over.

Related topics:  Mortgages
Rozi Jones
24th June 2022
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"Anyone fixing for longer than five years right now may well end up regretting it once inflation is bought under control and lenders readjust rates."

Questions asked brokers about the risks, and whether rates could come back down once inflation is closer to target to help the economy out of a possible recession? Also, where do they think rates will be in the medium-term?

Lewis Shaw, founder and mortgage expert at Shaw Financial Services: "We certainly won't see the likes of sub-1% mortgages again. Those days are over unless we have to contend with another emergency like Covid. Even then, I think we've seen that monetary policy magic tricks such as dropping bank rate to 0.1% haven't been healthy for us in the short or long term. A market economy needs a sensible base rate to function effectively; otherwise, it unbalances everything else around it. Trying to predict where rates will be in a month is impossible. Any longer than that is for the birds, although it's possible we could see the norm rise to 4/5%. So the question of how long should I fix my mortgage is never a one-size-fits-all answer. That can only ever be determined by someone's individual circumstances in consultation with a good-quality broker. However, fixing for five years will see out this period of instability and protect people against both rate rises and possible house price dips."

Imran Hussain, director at Harmony Financial Services: "Anyone fixing for longer than five years right now may well end up regretting it once inflation is bought under control and lenders readjust rates. The exception is if people only have 10 years remaining on their mortgage term and wish to just be done with it with one long fix. The predictions are that inflation should be bought under control by 2024, and if so anyone on a 10-year fix who has possibly arranged it in the past six months may well regret it as the penalties to remortgage won't be cheap. As always, seek professional advice as fixing for a long period right now may not always be best for your personal circumstances."

Jamie Lennox, director at Dimora Mortgages: "Based on the fact many five-year fixed rates are now lower than a two-year fixed rate product, there is an argument to say lenders see a short-term squeeze on rates to combat inflation but for rates to then reduce back down to more manageable levels. From a borrower's point of view, it's a balancing act of what is right based on their needs. If rates do come tumbling down, yes some will be kicking themselves for the fact that they are missing out. However, at least they secured a rate at the time that was affordable to them. Many people simply can't take the risk of what might happen in two years as if interest rates do shoot up further, it could lead to huge financial difficulties."

Edward Checkley, managing director at Advias: "Assuming inflation does come down and the economy is failing, then rate cuts could be introduced, bringing us back into the 2% territory for medium-term mortgage money. However, we feel the time of super low borrowing rates is over, forever. The cost of fixed money has dramatically increased in the past year. Five-year fixed mortgages were circa 1% a year ago and they are now around 3%. On a £250,000 mortgage, that represents a £417 increase in monthly interest cost. We must remember that the base rate is only 1.25% and this could rise to circa 3% within the next 24 months. Therefore, even if rates do come down at a later stage, will they better today's offering? It is key that borrowers start the remortgage process as early as possible, ideally six months before their rate expires so as not to be faced with the option of a high standard variable rate or higher market rates. It is our opinion that fixed rates will continue to rise and with global issues affecting inflation, Bank of England rate rises will only slow the growth rather than reduce it. Therefore we could see five-year fixed mortgages in the 4% plus range within 6-12 months."

Jonathan Burridge, founding adviser at We Are Money: "It is naïve to believe that the current rate rises were seeing are going to reverse and things will return to the levels we have enjoyed for the last decade. It is possible that we will see a period of regular adjustments as central governments try to maintain an economic balancing act whilst we navigate the bumpy journey ahead. There is so much uncertainty that it would take Marty McFly to venture a view on the future. The UK mortgage market has been lacking longer term fixed rates and those that have been offered have generally been poorly subscribed for a whole host of reasons. There is the risk that you could be committing to higher costs than you may otherwise average through shorter term products over a comparable period. However, if you asked the borrowers whose rates are ending now whether they would have opted for a rate marginally higher back when they took their product for another three or five years certainty, I would expect a sizable number would show buyer's remorse. It is a longer term commitment, but, the additional features of portability and permitted over-payments do make the contracts more appealing and flexible. Longer term rates have a place in mortgage advice and if more providers were in the space and rates were more visible the uptake would increase."

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